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Sagot :
A price ceiling is a cap placed by the government on the cost of a good or service to protect consumers. The example and rationale are discussed below.
A price ceiling is a sort of price regulation that establishes the maximum price a seller may charge for a good or service and is typically imposed by the government.
For the measure to be effective, the price set by the price ceiling must be lower than the price of natural equilibrium.
Example:
1. Insurance reimbursement: Health insurance companies frequently impose limits on the sums that they will pay to physicians or consumers for office visits. Therefore, you may classify the medical insurance business as one where price caps are important.
OR
2. Prescription medications: For some medications, the government can set a Price cap. Amid generally free-market pricing, this is supposed to guarantee that everyone has access to medication, especially those with modest incomes.
Rationale:
A price cap results in deadweight loss, which is an unproductive result. Even if a deadweight loss occurs, the government sets a price cap to safeguard consumers. In the US, rent control is an illustration of a price cap.
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